Government Locking-in its Expenditures and Policies

It was Obama’s chief of staff, Rahm Emanuel who said, “Never Let A Good Crisis Go To Waste”.  He meant use it to lock-in things that, “you did not think you could do before”.  Socialists in Australia follow several strategies to prevent their political opponents undoing their work.  These include

  • signing environmental treaties like that the Kyoto Convention, which involves preventing the clearing of land to allow its cultivation;
  • setting up default provisions for increased stringency on permitted greenhouse emissions;
  • providing 15 years up-front subsidy payments for renewable energy investments;
  • legislating far in advance and ordering material for the NBN roll-out;
  • creating with forward funding useless agencies like those involved in carbon capture and storage, destructive policies like water buy-backs and sinecurial research grants to progress the government’s own agenda and feed its supporters
  • providing 27 year contracts on white elephants like Victoria’s $5.7 billion desalination plant;
  • as Samuel J has pointed out, ensuring 5 year contracts at exorbitant remuneration (albeit with one year salary payouts possible) for the political appointees heading Departments and other agencies

Leftists like Rahm Emanuel recognise that a ratchet is in place enabling them to climb new heights of intervention and control and hold them pending a further opportunity to ascend the next peak.  Paying the costs of these excesses is never considered a problem.

Sanctity of contract is an essential feature of private enterprises dealing one with the other.  It has also been important to ensure governments can be relied on not to welch on deals even though their monopoly on legal violence allows them to do so.

Drawing from Rothbard, John Cochrane suggests treating the two differently and argues for repudiation of debt.  Rothbard writes, “[W]hen government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.”  Cochrane goes on to argue,

Both parties [the politicians doing the borrowing and the members of the public loaning funds to the government] are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people’s property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance should be treated as some sort of sanctified contract.

I think that such reasoning opens up too many loopholes and, ethical questions aside, might result in very high transaction costs for government.  It is however a different matter where future entitlements are concerned.  These should not be regarded as fixed and any compensation (including for termination of office) that exceeds some norm (1-3 months salary) should be regarded as inappropriate.

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29 Responses to Government Locking-in its Expenditures and Policies

  1. areff

    Not to mention locking in three-years of funding for the ABC, a deal I believe is set to be finalised by the end of March

  2. Craig Mc

    It’s time for retrospective legislation to cancel such expenditures. The only negative consequences are that would be carpet-baggers and their lefty mates might think twice about ripping off tax-payers in the future.

    Projects would need bi-partisan support like they almost always should have in the first place.

    Why Baillieu didn’t let the desal plant go bust when he had the chance I’ll never know.

  3. brc

    You do have to be careful because government spending is always going to be a chunk of GDP, even if it went down below 20% GDP.

    I would hate to see half completed dam sites, highways and railways because some socialists got control of the spending again.

    In terms of the desal plants, I think there should be some concerted effort to find problems with the contracts which would give rise to the ability to walk away from them. Or at least do what corporate raiders do with problem entities, packge them up and dump them off the balance sheet to suckers.

    A perfect thing for the ethical investment funds to buy – a couple of mothballed desal plants which will never be turned on.

    I think the some carefully thought through legislation which allows a government to walk away from a project on pre-set grounds, such as incorrect assumptions being used, or excessive costs compared to comparables, or something, That would signal to private firms entering government contracts they had better make sure their sums are right.

    Of courses the problem with that is that it raises the cost of doing business with the government, but you’d have to balance that against the actual costs encountered when taxpayers get fleeced rotten and can do nothing about it.

  4. All comes back to this nonsense that the government is able to issue debt.

  5. Louis Hissink

    One devout socialist told me that borrowing from the future was quite permissable as, in his view, the capitalists were going to pay for it. Only flaw in his reasoning was that on attaining his socialist nirvana, on a road with ever decreasing capitalists, the debt would never, ever get paid. And then you wonder from whom the money was being borrowed from – the future?

    So how the hell do you create money in the here and now that is supposed to be from the future.

    Now THAT is the problem.

  6. .

    Louis

    These people don’t realise that there is a nexus between the physical and financial markets, which is depressing and mildly amusing, since they laud Keynesian economists who think no one else knows that fact…

  7. Joe

    I think your premise is wrong.
    Even as a child I knew that doing business with the government is fraught with problems. The most important being; the incoming government can cancel your contract.
    This is the reason why prices to government are higher, you have to factor in the chance of cancellation.

    As for the current contracts and lock in’s; what government can legislate, government can repeal.

  8. dianeh

    Perhaps a condition of any contract that a govt forms is that is must be in the interest of the country. Sort of like a superannuation fund. They must act in the interest of their members above all other factors. If they do not, they are held liable and may face charges.

    Well perhaps the criteria for voiding of govt contracts (legislation cant be locked in, it can just be repealed or ammended) is that if the contract is not in the best interest of the country then the govt could apply to have the contract voided in the courts.

    This is of course subjective, but such things as outrageous costs far exceeding market values, long term contracts far exceeding market standards, international agreements that clash with Australian laws etc. Criteria would need to be objected and measurable. In addition, contracts that give huge gains to related parties, including unions/union super funds, should be extensively reviewed for gains given to others at the expense of the govt. For eg Obeid’s dealings in NSW.

    And take it one step further. Pursue the minister/secretary who formed the said contracts for compensation or gaol time.

  9. Tom

    Not to mention locking in three-years of funding for the ABC, a deal I believe is set to be finalised by the end of March

    I would hope that an incoming government can do what it likes with the ABC’s funding year to year. It is not an external entity and its funding is not agreed in any contract.

    There is little doubt in my mind that the rabble represented by Conroy, Wong and/or Swan will announce a substantial increase in funding as a downpayment on the ABC’s crucifixion of the Abbott government.

  10. Nonsense

    Dianeh

    It already exists, section 44 of the Financial Management Act.

  11. Dan

    As many people watch prime time ABC television as Channel 10. That is to say, it is a failure. The liberal government should allow advertising with revenue raised through that deducted from the government stipend plus a 20% reduction year by year so that after five years, all government hand outs will be abolished.

  12. handjive

    Quote:

    Socialists in Australia follow several strategies to prevent their political opponents undoing their work. These include-

    * signing environmental treaties like that the Kyoto Convention, which involves preventing the clearing of land to allow its cultivation;

    August 16, 2012: Coalition supports sequel to Kyoto protocol

    So, Abbott is a socialist?

    The enemy is the UN-IPCC agenda 21 junk climate science.
    Alan Moran needs to realise this is beyond partisanship.

    Anyone who supports the Climate Commission/UN-IPCC/CSIRO junk science agenda 21 is a traitor to Australia.

    They are all traitors.

  13. Dan

    I would be inclined to be a bit more generous in regards to radio, but I would make them lease the infrastructure from the government for say, 10 years, after which it will go out to tender.

    Online should be lumped with the TV deal. Government funding of journalists, activists and other pinko green weirdos peddling opinionated drivel should not be allowed.

  14. brc

    So, Abbott is a socialist?

    That has been extensively discussed, and the answer is yes, for the most part.

    The worrying thing is that people have to give him the benefit of the doubt for making mealy-mouthed comments in the small target strategy, and hoping for some backbone post election. But I’m not certain that is going to be the case. He has shown a distinct desire to be liked by the media class, which is the path to the dark side.

    Maybe Abbott as the new PM can take a visit to Canada and see the fine work going on there where they told Kyoto to be jammed where the sun don’t shine and managed to 86 a bunch of useless anti-free speech laws.

    I don’t hold out much hope. It was John Howard who banned clearing for Kyoto, set up the Greenhouse office which laid the groundwork for the carbon tax, and liked to dabble in a bit of Keynesian lunacy, especially if there was a vote in it. And I think we can agree that Abbott is less conservative than Howard ever was.

  15. J.H.

    Excellent post….. and highlights the Socialist’s abuse of our Democracy.

    The point of having democratic Governance is to assure that an abusive tyranny does not rise to prominence within the “elite” of society, whomever they may be.

    By having 3 year non fixed terms, Government is restricted to representing the interests of society and not itself…. Essentially all they have “won” is the right to be criticized. To make suggestions of how to make the best use of our combined strengths, wealth and enterprise… and to be rejected, ridiculed and derided at every step until enough agreement for something has be….”won”.

    However the Bureaucracy does not change…. and this flaw allows for a festering infection of socialism to accumulate and rot our society from within. To interfere in every fiber of our society… and to weaken our greatest strengths. Our freedom of thought and enterprise.

    We would do well to get rid of this corrupted bureaucracy as possible.

    We are either a free people within a free society, or we are merely tax slaves beholden to masters that allow us certain “freedoms” as they see fit.

  16. trax

    Thank you for putting these thoughts into a post. I think there needs to be a lot of discussion about how to reduce the potential burdens of lock-in policies by one side of politics (particularly the left).

    The burdens seem to keep increasing with the structure of government and bureaucracy.

  17. Marky

    legislating far in advance and ordering material for the NBN roll-out;

    This always bothered me most of all. I can accept that some projects just won’t be finished in the space of a 3-year term, or at the very least get up and running within that time, so I see a need for the possibility of ‘legislating far in advance’, although not too far. Maybe such things should be put to a non-compulsory ballot? I think the electorate should have the final say on whether or not far-reaching legislation is acceptable.

  18. NoFixedAddress

    It is moral theft!

    Just as are subsidies for RET’s, solar panels, wind mills, car subsidies, unions, employer organisations, media organizations and political parties.

  19. Jc

    Great summary Alan.

    You suggest:

    I think that such reasoning opens up too many loopholes and, ethical questions aside, might result in very high transaction costs for government.

    I don’t consider that a bad thing to be honest. If the cost of doing such things is prohibitive then it won’t get done.

    The other thing that can be done is for The Right to always have a blanket undertaking that any contract made by a Leftwing government may or or may not be honored.

    That basically sticks them with a red hot poker.

  20. Jc

    Not to mention locking in three-years of funding for the ABC, a deal I believe is set to be finalised by the end of Marc

    The Libs are perfectly entitled to walk away from that on the first hour of winning. The ABC is dreaming if they believe that.

  21. Samuel J

    Excellent article Alan – I agree entirely.

  22. Borisgodunov

    If Abbot and his crew dont undo the u.n. giLIARd crudd commo rubbish ,we must start to Destroy them ,as we Destroyed the Fascist Commos.Politicians. And lawyers are ALL Rubbish and need Complete Control by the People.

  23. Des Deskperson

    ‘ensuring 5 year contracts at exorbitant remuneration (albeit with one year salary payouts possible) for the political appointees heading Departments and other agencies’

    So far as I am aware, it will still be possible, under the proposed amendments to the PSA Act currently before Parliament, to terminate a Departmental Secretary at any time for any reason (current s59 of the Act), irrespective of the length of their contract, if the relevant Minister wishes it. The only significant change is that the Public Service Commissioner has to be be consulted in this process.

    This latter amendment could provide a smidgen of protection for a Secretary whose minister doesn’t like to be told that what he/she is proposing wasteful, unethical and/or illegal, but it is unlikely to prevent a Minister from clearing out an obviously political appointee on assuming office, as the Coalition did to no less than six Secretaries in March 1996.

  24. James

    All Abbot must say is this:

    “By default we will not honour any contracts entered into by the previous government. ” End of story.

  25. WhaleHunt Fun

    “All Abbot must say is this:

    There was no previous government, just a rabble of mentally unstable persons who are being rounded up as I speak and confined so as to prevent their suicide. Having as we do, ample evidence of their insanity, ALL undertakings made with these legally incompetent persons are invalid.

    All uninvited arrivals have 24 hours to leave before the death penalty applies.

    All fixed.

  26. rafiki

    It might be a bit late to ask this, but I am interested in why Alan Moran thinks that ‘very high transaction costs’ might flow from a Commonwealth government refusal to abide by a contract. This is an issue that will be much on the agenda when the LNP takes office. A principle they might rely on is that “in the case of a contract by a subject with the Crown, there should be implied a condition that the providing of funds by Parliament is a condition precedent to the Crown’s liability to pay moneys which would otherwise be payable under the contract”. (See quoted in Bardolph, HCA, per Evatt J). What costs could attach to the failure of Parliament to appropriate moneys for a contract?

  27. alan Moran

    Rafiki
    What I had in mind here was that if there is little trust in government then suppliers will require a high premium in the price they charge. Am not committed to the position i postulated. But the Coalition is now recognising that if coal fired electricity plants are to be built (and forecasts of new gas prices suggests they will be the cheapest supply route), they would need some kind of contractual guarrentee against a carbon tax

  28. rafiki

    Thanks Alan. I understand that you are speaking of future transaction costs if (for example) payment according to past contracts (and any kind of commercial contract I guess) is frustrated by Parliament’s failure to appropriate money for payment. I see your point.

    I guess it is very different where a government owned body (such as the ABC) is concerned. The body may continue to exist (if say, the Senate refused to pass a bill for restructure) but it would not get money to operate (or to operate at a much reduced scale). In this sort of case, the interests of those whose jobs would disappear would need to be addressed.

    Of course, the Senate could block an Appropriation Bill that proposed a reduction, and then we are back to 1975. I suspect that the ALP might not see this the way Whitlam did.

  29. Jim Rose

    are any of the desalination plants actual in use now?

    put a desalination plant near tim flanery’s water front house. all for the cause

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